ISTANBUL, Feb 13 (Reuters) - Turkey has drafted changes to the penal code, narrowing the definition of terrorist propaganda in a step to boost freedom of expression in line with EU demands and potentially encourage a fledgling peace process with a jailed Kurdish militant leader.

The bill, presented to Prime Minister Tayyip Erdogan on Tuesday and likely to be sent to parliament this month, may lead to the release of defendants accused of links to Kurdish rebels, a justice ministry official told Reuters on Wednesday.

Turkey has used anti-terror legislation widely to prosecute thousands of politicians, activists and journalists, frequently for things they have said or written.

Turkey regularly tops the list of countries violating the European Convention of Human Rights and the European Commission has called on Ankara to amend its laws to distinguish between incitement to violence and expression of non-violent ideas.

"Regulations have been prepared which rescue this country from such trouble ... opening the way for freedom of expression and thought in Turkey," Justice Minister Sadullah Ergin said.

The reform was in line with European Court of Human Rights criteria, under which only a direct incitement to violence constitutes a crime, he told reporters.

"When a person shares an idea and writes it down, if it does not contain, inspire, incite or try to legitimise violence, how can somebody be convicted?" the minister said.

If approved, the legislation is likely to be welcomed by Europe, which frequently criticises Ankara's human rights record and imprisonment of political activists and journalists.

Under the current anti-terrorism law and criminal code, writing an article or making a speech can lead to long prison sentences for membership of a terrorist group.

Thousands of Kurdish politicians and activists have been prosecuted since 2009 over alleged links to the Kurdistan Workers Party (PKK) - deemed a terrorist group by the EU and Washington, as well as Turkey.

The judicial reform coincides with a government bid to bring a end to the PKK's 28-year-old insurgency, in which more than 40,000 people have been killed, through peace talks with its leader Abdullah Ocalan, jailed on the island of Imrali near Istanbul since his capture in 1999.

KURDISH TALKS WITH OCALAN

The peace process envisages a PKK ceasefire, their withdrawal from Turkish territory to their bases in northern Iraq and eventual disarmament in return for reforms boosting the rights of a Kurdish minority numbering around 15 million.

The process has come to an apparent halt over the last month due to a dispute over a Kurdish delegation due to visit Ocalan. Erdogan has rejected the inclusion of politicians previously filmed embracing PKK militants.

But when asked about the timing of the visit on Wednesday, Erdogan signalled the row may have been defused.

"The relevant colleagues are working on it and if possible it will be this week and if not, next week, but it will happen," Erdogan told reporters.

During his decade in power, Erdogan has pushed through reforms boosting Kurdish cultural rights but Kurdish politicians have demanded decentralisation, Kurdish language education and a new constitution boosting equality.

Last month, parliament passed a law allowing defendants to use Kurdish in court, although Kurdish politicians said it fell short of their demands.

A justice ministry official told Reuters the general lines of the penal code reform had been agreed.

"When final technical adjustments have been completed and an assessment made it will be presented for the cabinet of ministers to sign. It looks possible it will go to parliament this month," he said. (Additional reporting by Orhan Coskun; Writing by Daren Butler; Editing by Jon Hemming)

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